Many IT-savvy banks eagerly invest in applications and services that will build wireless solutions for customers' cell phones and wi-fi gadgets. They have been far less enthusiastic, however, in applying wireless technology for their own local networks, systems and devices.
The prime hurdles? Security and economics. Unlike locked-down landlines, a wireless network is on public bandwidth, available for anyone with the right set of virtual keys. A 2003 OCC advisory on wireless network deployments sounded more like a warning shot, cautioning that weak encryption standards and open spectrum use might cloud the risk picture for an institution's entire operations. For many, high-speed terrestrial networks have been a more appealing, less expensive option.
But back-office buzz for wireless LANs is beginning to build, particularly for rural and community banks whose data pipes and budgets are bogged down by aging, expensive T1 and ISDN lines. Growing needs for redundancy and the delivery of more broadband-dependent services like voice-over-IP and imaging have changing the fiscal equation for wireless networks that are starting to "step up" for banking, says TowerGroup's Bob Egan, research director of emerging technologies. "In 2006, we really began to see that crossover."
That may be most evident in Louisiana, where banks gained a new perspective on wireless after the land telecommunications infrastructure was nearly destroyed by Katrina, with BellSouth reportedly losing 34 central offices, leaving hundreds of bank branches incommunicado for months throughout the state.
One small institution, Jeff Davis Bank & Trust in Lake Charles, carried on normal operations in its 14-branch network because of its wireless network bought from a Texas-based startup, ERF Wireless Solutions. According to ERF COO John Burns, the bank drew heavy business and residential customers as one of the few fully functioning institutions after the disaster. "Because they stayed online, their assets went up $100 million in three weeks," says Burns.
The Jeff Davis network, owned by the bank but maintained by ERF in a wireless Internet service provider (WISP) agreement, is one of seven regional banking networks that ERF of League City, TX has built or acquired in Texas, Louisiana and Missouri since 2003. ERF is now building a $5 million wireless broadband network across Louisiana that will bring connectivity to regional banking clients statewide.
Wireless wide-area networks (WANs) have been utilized in recent years by banks-such as Sovereign Bank in Reading, PA-through carriers like Sprint and Cingular and using Cisco routers with wide-area capabilities. But out in the sticks, businesses have always been beyond most telcos' "last mile" of wireless or landline connectivity. "In rural markets, you don't have the fiber reach and quite often you don't have the cable reach-particular business services over cable TV," says Egan. For areas where DSL and cable-modem reach is available, Egan says, the bandwidth may be drastically limited or available only at a premium opportunity charge from the carrier.
Those charges would amount from a few hundred to perhaps $8,000 and up each month for a regional bank like Iberville Bank in Plaquemine, LA, another small institution that recently signed on with ERF Wireless.
Market opportunities for network operators are also limited. The wireless WAN marketplace is tremendously fragmented, from specialty providers like ERF to those building municipal wi-fi networks for coffee shop patrons. To justify its business plan, ERF had to employ a recurring revenue model with monitoring/ maintenance agreements and reselling unused bandwidth from its clients.
Egan says carriers are also investigating newer WiMAX standards, which will provide high-speed access for last-mile deployments capable of handling fourth-generation mobile data and telecom services. But those won't be cheap. Sprint Nextel, Intel, Motorola and Samsung announced plans last year to spend up to $3 billion on developing a WiMAX network on Sprint Nextel spectrum through 2008.
Security is still the elephant in the room, regardless of wireless WAN business solutions. Burns, who was previously chairman and founder of FundsXpress, says ERF had to overcome regulators' concerns by issuing biometric, encrypted multi-user monitoring equipment to assure them of the network's fortitude. "We first presented Cisco-style VPNs, with everything encrypted point-to-point, cross-relay towers and everything," he says. "But they weren't comfortable with a single IT person or network consultant having control over that encrypted tunnel."
ERF, which expects to finally emerge from its unprofitable development stage this year, plans to continue adding more regional networks and move onto a national stage catering to under-$2 billion asset banking clients. "We definitely have plans for more acquisitions," says CEO Dean Cubley.
